JAN SHIKSHAN SANSATHAN,MOHALI vs. INCOME TAX OFFICER, EXEMPTIONS WARD, CHANDIGARH, CHANDIGARH

“1. That the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the rejection of application filed u/s 154 against the processing done by CPC u/s 143(1) leading to denial of exemption u/s 11 in utter disregard of the explanations filed which is arbitrary and unjustified.

That the Ld. Commissioner of Income Tax(Appeals) has further erred in holding that the rectification application was filed beyond the time limit which is an incorrect finding and as such the order passed is arbitrary and unjustified.

Briefly the facts of the case are that the assessee society originally filed its return of income on 31/08/2016 which was processed by the CPC, Bangalore whereby a demand of Rs. 11,44,930/- was raised and claim of deduction under section 11 was denied vide intimation under section 143(1) dt. 21/02/2018. Subsequently, the assessee filed a rectification request before the CPC, Bangalore on 05/03/2018 which was not disposed of by CPC, Bangalore and no order was ever passed by the CPC, Bangalore. Thereafter, the assessee received a notice under section 245 from CPC, Bangalore in respect of outstanding demand for the impugned assessment year 2016-17. In response, the assessee filed another rectification application before the jurisdictional AO under section 154 wherein it was submitted that in terms of intimation under section 143(1), a demand of Rs. 11,44,930/- was raised as the income was wrongly shown under the head “business income” instead of “income from other sources” although the application of funds towards charitable purposes has been shown in the Income Tax Return. The rectification application filed earlier on 05/03/2018 reflecting the receipt under the head “income from other sources” as well as computation of income were submitted before the AO.

As per the AO, the application of the assessee is not acceptable as perusal of the facts from ITBA and documents on record, it was found that CPC has rightly processed the return of income. Further on perusal of the ITR in the column of other details, it is seen that the assessee has responded “Yes” in Column A(i) which reads as “Where, in any of the project / institutions run by you, one of the charitable purposes is advancement of any other object of general public utility” and the assessee has not given any details in this regard.

The AO accordingly held that there is no merit in the claim of the assessee and the rectification application was taken as filed. Thereafter the assessee carried the matter in appeal before the Ld. CIT(A) and the submissions made before the AO were reiterated. It was submitted that the income was wrongly shown under the head “business income” as against “income from other sources” and the information regarding application of fund has been duly filed in the return of income and copy of the return of income, Audit Report and account maintained by the assessee were duly submitted before the Ld. CIT(A).

After considering the submissions of the assessee, the Ld. CIT(A) has returned his findings which read as under: “In this case, there was a prima facie mistake committed by the appellant 5. society wherein incorrect input were given in the return filed. It is for this reason CPC while processing the return did not give the deduction claimed u/s 11 of the I.T Act. The appellant society could have filed revised return by giving the correct particulars in the return. In present case, it was not done. Hence, CPC did not act on the rectification application filed by the society on 05.03.2018. If at all the appellant society claimed that intimation u/s 143(1) dated 6. 21.02.2018 was a mistake u/s 154 of the Act, they should have filed rectification application within statutory time limit of four years. As per sub-section (7) of Section 154 of the IT Act, no amendment shall be made under this Section after the expiry of four years from the end of the financial year in which the order sought to be amended was passed. The order sought to be amended in this case was intimation given u/s 143(1) dated 21.02.2018. In present case, the rectification application itself was fled beyond the time limit given in statute i.e. on 26.05.2022. The AO failed to note this fact also. In view of the above, the grounds taken are dismissed.”

Against the said findings and direction of the Ld. CIT(A), the assessee is in appeal before us.

During the course of hearing, the Ld. AR taken us through the original return of income filed on 31/08/2016 wherein in Part B- T-1 wherein the assessee has to disclose the statement of income, it was submitted that the assessee has shown the income of Rs. 36,59,222/-wrongly under the head “Profit and Gains of Business or Profession” as against “income from other sources” and as a result of that, the CPC, Bangalore while processing the return of income has denied the claim of exemption under section 11 regarding utilization of funds for the charitable purposes vide intimation u/s 143(1) dated 21/02/2018. It was submitted that immediately after realizing the mistake, the assessee filed the rectification application vide acknowledgment number 424115210050318 on 05/03/2018 i.e; within 15 days of receiving the intimation from the CPC, Bangalore. In this regard, our reference was drawn to the return so filed as part of the rectification application whereby in Para B, T-1, the assessee has shown NIL income under the head “Profit & Gains of Business & Profession” and an amount of Rs. 36,59,222/- has been shown under the head “income from other sources”.

Further, our reference was drawn to the audited financial statement at page 3 of the assessee’s paper book wherein the nature of income has been shown in terms of grants received/receivable during the year, course fees, bank interest, interest on FDR and certain miscellaneous income. It was accordingly submitted that all these details are available on record and merely basis the wrong disclosure in the original return of income, the exemption was denied and demand was raised which the assessee has sought to rectify by filing the revised return on 05/03/2018 and which has not been processed by CPC and no intimation/order has been passed till date and thereafter, in response to notice under section 245 when the assessee again brought the said fact to the notice of the jurisdictional AO, he also failed to take cognizance of the same and has dismissed the rectification application.

Regarding findings of the Ld. CIT(A) that the assessee society instead of filing rectification application could have filed the revised return of income, it was submitted that the application so filed by the assessee was in fact under section 139(5) whereby the assessee has filed the revised return of income and therefore without appreciating the material on record, the Ld. CIT(A) has recorded the said findings. It was accordingly submitted that necessary relief be allowed to the assessee.

Per contra, the Ld. DR has relied on the order of the lower authorities.

We have heard the rival contentions and purused the material available on record. The ld CIT(A) has returned a finding that there was a prima facie mistake committed by the assessee society wherein incorrect input were given in the return filed and it is for this reason that the CPC while processing the return did not give the deduction claimed u/s 11 of the I.T Act. It is also the submission of the assessee that while filing the return of income, the income has been inadvertently shown under the head “business income” instead of “income from other sources”. There is thus no dispute and it is an admitted fact that a mistake has occurred while filing the return of income. In terms of corrective steps, the ld CIT(A) has held that the assessee society could have filed revised return by giving the correct particulars in the return and he goes on further to state that the assessee has not filed the revised return of income.

In this regard, the ld AR has submitted that the assessee society has filed a rectification application on 5/03/2018 and the application so filed by the assessee was in fact under section 139(5) whereby the assessee has filed the revised return of income. We have gone the rectification application dated 5/03/2018 which is placed at APB pages 26-42 and find that the same has been filed as stated under section 139(4) whereby the revised return of income has been submitted rectifying the mistake initially committed while disclosing the income whereby the income has now been disclosed under the head “income from other sources”. The fact of the matter is that it was not a rectification application simpliciter u/s 154 but actually a return of income revising the head of income disclosing the income under the correct head of income in the hands of the assessee society and rest all particulars remaining the same. The said return of income was in substance a return filed under section 139(5) though wrongly mentioned as filed u/s 139(4) for the simple reason that in the present case, the assessee has already filed the original return of income and question of filing the belated return of income u/s 139(4) doesn’t arise. The said revised return of income has been filed within the stipulated time frame as so prescribed u/s 139(5) of the Act and given that no intimation u/s 143(1) has been issued by the CPC Bangalore within stipulated period of one year from end of the financial year in which return was so filed, it shall be deemed that such return of income has been accepted by the Revenue and no adjustment is warranted. In view of the same, we are of the considered view that both the lower authorities have failed to take into consideration revised return of income so filed and were swayed by the fact that it was a rectification application u/s 154 of the Act.

Even for the sake of argument, it is considered as a rectification application, the fact of the matter is that a mistake has occurred while filing the original return of income and within 15 days of receiving the intimation u/s 143(1), the assessee has moved the rectification application u/s 154(2) and in terms of section 154(8), it was incumbent on part of the CPC to pass an order within six months of receipt of the rectification application and given that the same has not been passed, it will be taken as deemed acceptance on part of the CPC Bangalore that they have accepted the rectification application so filed.

As far as the second rectification application is concerned, we are unable to appreciate the reasoning adopted by the AO while rejecting the application. The AO has stated that the CPC has rightly processed the return of income failing to appreciate that the assessee has filed a revised return of income which has not been processed by the CPC and secondly, what details have not been given by the assessee has not been specified by the AO while rejecting the application.

In light of aforesaid discussions and in the entirety of facts and circumstances of the case, we are of the considered view that all necessary particulars have been disclosed in the revised return of income in terms of receipts and utilization, and there is no justification in denying the claim of exemption u/s 11 to the assessee society and the same is hereby directed to be given as so claimed in the return of income.

In the result, the appeal of the assessee is allowed.